According to FINRA, Peter James Fetherston appealed a remanded Office of Hearing Officers decision to the National Adjudicatory Council after being barred from association with any FINRA member in all capacities for providing a partial but incomplete response to a FINRA request for information during its investigation into whether he had misappropriated customer funds.
The findings revealed that Fetherston received three checks made payable to him personally totaling $89,000 from two long-time customers, a married couple. Shortly afterward, Fetherston's member firm conducted an internal investigation into his mutual fund-related activities and discharged him for violating firm policy related to mutual fund purchases and sales.
The married couple was among the customers impacted by Fetherston's mutual fund conduct, and the firm reimbursed them for costs incurred. During a call relating to that reimbursement, the couple notified the firm that they had given Fetherston three checks made payable to him—one to pay for commissions they allegedly owed, and the others so he could buy investments for them.
When the firm contacted Fetherston about the checks, he told it he invested the funds in a "fixed investment" but had no proof. In fact, Fetherston had deposited the checks into his personal checking account and used the funds to pay his personal expenses—conduct that appears to constitute misappropriation of customer funds.
The firm filed a Form U5 disclosing Fetherston's termination and noting that the customers complained about providing checks made payable directly to Fetherston for what he said were commissions and investments, and that the firm had settled the complaint for $89,000. This filing triggered FINRA's investigation.
FINRA requested that Fetherston identify and provide certain information about medical expenses he purportedly paid with the funds from the three checks. Fetherston produced personal bank and credit card statements. However, Fetherston used the vast majority of the customers' funds to make payments to a credit card account for which he did not provide statements.
Without the relevant credit card statements reflecting the charges or the list of medical expenses FINRA requested, FINRA was unable to determine whether Fetherston used the funds to pay medical expenses as he claimed. Furthermore, FINRA had to exert significant regulatory pressure to obtain even the partial information Fetherston provided, including issuing numerous follow-up requests and threatening sanctions.
The majority of the hearing panel found that FINRA failed to prove that Fetherston converted or improperly used customer funds or provided false or misleading information, and dismissed those causes. The Hearing Officer dissented from this decision. The bar was based solely on providing an incomplete response to FINRA's requests.
The sanction is not in effect pending review. This case illustrates the critical importance of providing complete responses to FINRA requests, particularly when investigations involve potential misappropriation of customer funds.
